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Environmental Project Approval and Financing in China
Executive Summary

Despite the enormous potential size of the environmental technology market in China, achieving market penetration or successful participation in projects remains difficult. The likelihood of China joining the World Trade Organization (WTO) will go a long way toward making US technology and consulting services more appealing in China, however, ongoing Chinese government and financial reforms will continue to leave the process leading to project approval confusing and opaque. This report charts the project approval process, discusses the most common project financing structures, and outlines the roles of ministries, banks and government agencies. Furthermore, it includes information on the basic types of environmental projects available to US firms and offers five Case Studies to demonstrate both positive and negative examples of past foreign-invested projects in China.

While the government and economy will undoubtedly continue to evolve and probably become more transparent, it is crucial for US firms to understand the most basic supports that such projects will need at the local and national levels if they are to survive the entire approval process and receive viable financing. By reviewing the responsibilities and motivations of relevant ministries and local officials this report will provide context to those companies who may be approaching the process for the first time. It will also offer suggestions by way of Case Study examples for improving strategies when competing for projects that are viable on commercial terms.

This report also includes a Chart of the Basic Project Approval Process and a Decision-making Checklist which are designed to provide a road map for companies when approaching projects in China. The Checklist should provide an objective reminder to companies of the persistence and commitment necessary when pursuing environmental projects. Annex B includes a list of contact information for key ministries and institutions that can be contacted directly regarding specific projects and approval procedures.

The Case Studies are designed to provide insight into the realities of doing business in China from perspectives that vary by region, sector and project type. They will attempt to show some of the reasons for success or failure by foreign companies, bearing in mind that project work in China exists in a cultural milieu that emphasizes personal relations, includes extensive and nuanced negotiating processes, and carries the burden of inter-ministerial conflicts of interest.
Introduction and Institutional Framework

China is, by conservative estimates, in need of a massive amount of pollution treatment and environmental equipment and technology if they are to slow and eventually reverse a frightening record of environmental degradation. The Chinese government has long recognized these problems and in the Ninth Five-Year Plan (1996-2000), for example, it included specific environmental goals, such as raising industrial wastewater treatment at the county level, applying air pollution treatment equipment to industrial stacks, and boosting centralized treatment of municipal wastewater. In addition, the “Three Synchronies” policy requires that pollution treatment equipment be incorporated into the design, construction and operation of all future projects as well as renovation of existing facilities, and Environmental Impact Assessments (EIAs) be mandatory for such projects. Pollution fees and fines exist at the enterprise [factory] level, however, although they are in place to punish polluters, they unfortunately often remain too small to force the purchase of pollution prevention or abatement equipment. In addition, the prices of resources, such as water and electricity, and fees for treatment, such as wastewater, are being gradually raised in an effort to reflect their scarcity and provide municipalities with more substantial (although presently far too inadequate) future streams of income which can be used for support of infrastructure investment.

Sewage treatment equipment is needed by various enterprises such as township enterprises, hotels, offices, hospitals and rural areas, and, on a larger scale, municipal wastewater treatment will continue to be a priority. The central government realizes that development can not continue at this pace without the accompanying cost of environmental pollution abatement technology. However, as in most cases, the major question is, “Who will pay for it?”

Further complicating matters is an opaque and often seemingly irrational project approval process which is tightly guarded by the government at all levels. China is one of the world's largest markets, but it is also one of the most baffling to enter. The difficulties that foreign companies face in China are formidable, and it is important to be thoroughly prepared. Key points to remember are as follows:

Several lists of priority projects exist, including the Priority Program for China' s Agenda 21 under the State Development and Planning Commission (SDPC) and the Ministry of Science and Technology (MOST), and the Trans-Century Green Project of SEPA, in addition to those that ministries independently promote largely for their own interests. Many of the projects are simply not designed to be conducted on commercial terms, and are targeted at attracting multilateral and bilateral funding from agencies like the World Bank, the United Nations Development Programme and the Overseas Economic Cooperation Fund (OECF) of Japan, as well as private investors and environmental technology companies.

Roles of Ministries

State Environmental Protection Administration (SEPA)
SEPA is a ministerial-level authority directly under the State Council, responsible for environmental protection and pollution control in China. It is charged with the following:

SEPA, however, is hindered in its work because it lacks equal standing relative to more established central ministry interests (like the powerful State Economic and Trade Commission [see below]) and local governments (provincial, municipal and below). It also lacks strong control over local Environmental Protection Bureaus (EPBs) which remain largely funded and appointed by local government units. SEPA promotes a list of projects called the Trans-Century Green Project list, which has not been overhauled significantly in the last three years.

Local EPBs rely on local governments for funding, which is problematic. EPBs are only allocated some of the money (roughly 20 percent) that is collected as pollution discharge fines and fees. This, coupled with a lack of broader central resources from SEPA, may mean that SEPA is without as much clout as it would like to have at the local level to fully implement some of its policy objectives.

Ministry of Foreign Trade and Economic Cooperation (MOFTEC)

The Ministry of Foreign Trade and Economic Cooperation is a department under the State Council, which is in charge of the overall administration of China's foreign trade and economic cooperation as follows:

State Economic and Trade Commission (SETC)

SETC is the main department of the State Council in charge of adjusting and controlling the domestic economy and is directly in charge of industry sector policy. Powerful sub-departments include the State Bureau for Coal Industry, the State Bureau for Light Industry, the State Bureau for Machine-Building Industry, the State Administration of Petroleum and Chemical Industries and the State Power Corporation. Its mission is as follows:

State Development Planning Commission (SDPC)

SDPC is in charge of macroeconomic development and strategic planning for the overall formulation of a national economic and social development strategy and long-term planning for China's development. Provincial, municipal and lower-level local governments all include a local planning commission which is in charge of approving all local such development and project plans. At the national level they do the following:

Ministry of Science and Technology (MOST)

MOST is in charge of development and supervision of the development of science and technology in China, including environmental technologies. While SEPA itself has a small capacity to evaluate technology through its research institutes, such as the Chinese Research Academy for Environmental Sciences, it does not direct or plan China's overall technology policies. MOST is broadly in charge of the following:

Ministry of Finance (MOF)

Executing agencies for projects involving international funding submit Project Proposal approvals, Feasibility Study approval letter and financial resource specifications to provincial financial bureaus of the MOF for approval.

Ministry of Construction (MOC)

The MOC formulates the policies, laws and regulations for urban and rural infrastructure construction, and for urban and rural construction projects. Their responsibilities include the following:

Role of Local Authorities

Some cities use their own money to invite foreign equipment, technology and services to participate in the bidding process for environmental projects. The Guangzhou Municipal Government, for example, invited bids for a solid waste (landfill site) management project, and they are looking to complete a Build-Operate-Transfer (BOT) project. In this case, the Guangzhou Municipal Government needs foreign expertise regarding solid waste landfill site management and operation, a capability severely lacking among domestic Chinese companies.

By way of another example, major areas where foreign investment is currently being encouraged in Beijing include industrial projects using "high-tech" or "green" technology such as energy saving, resource recovery, and pollution monitoring equipment. Furthermore, urban infrastructure projects for construction of public utilities, such as sewage or garbage treatment and urban water supplies, are high priorities.

Provincial and municipal governments provide different preferential policies to encourage environmental projects. Cities such as Beijing, Shanghai and Shenzhen place a much greater priority on clean environments and also have much deeper financial resources, as well as a comparably high level of experience dealing with and understanding foreign investment mechanisms, expectations and practices. Typical of many provinces and municipalities, the Wuhan Municipal Government wants to promote policies to encourage foreign investment in infrastructure construction, reform of State-owned enterprises and in high-tech enterprises and export-orientated enterprises, especially in the Wuhan Economic Development Zone. Although understandable, this is more easily said than done. US companies should find that more and more locales will be pushing for the same goals, and are likely to push for approval of environmental projects. However, US companies will need to remember that all off these projects simply can not be adequately supported with local money, by local tariffs structures, or through a banking system that is still reeling from bad loans previously made to State-owned enterprises.

WTO and the Future

The Chinese government is actively researching and formulating policies to open-up foreign investment utilization, as promised in the bilateral agreement signed with the US on China's entry into the WTO. China will soften restrictions on foreign investment in the service industry and restrictions on RMB loans for foreign investors in China. The SDPC will further open the domestic service industry and allow foreign investors to hold more stock in certain domestic service sectors.

While the impact of these policies and intentions may not be immediately felt (some restrictions will take as long as five years to be lifted), their direction and intention are clear. The Chinese government would like to push domestic enterprises to become more efficient and effective by exposing them to competition from foreign firms. It should be noted that the main goal for much of the economy, and the environmental sector in particular, is to build domestic production capacity while creating Chinese engineering and pollution prevention technology enterprises that will be able to bid for and successfully complete projects across the full spectrum of environmental work.
Project Approval Process

Background to the Current Situation

Many project proponents (enterprises, local and provincial governments, and government agencies) are still seeking preferential loans and grants from international donors, and economically viable projects, in both the municipal and private sectors with reasonable rates of return, often remain elusive. Uneven enforcement, inadequate tariff and tax structures and a propensity for enterprises and government to only review short term (roughly two years) investment considerations make doing business difficult.

Since responsibility has largely been shifted to the provincial and municipal level, provinces and municipalities must bear the burden of proof regarding the financial and technical feasibility of a project. Municipalities decide how to finance their projects and with whom they will partner. Companies have to get involved much earlier than before in order to discuss and eventually receive projects, as this responsibility will likely continue to be localized. Provincial and municipal governments need to seek approval from State level authorities on some projects, but at the same time, the higher authorities can only approve those projects selected by the governments, industrial bureaus or enterprises at the local level. This means that higher level authorities can often be in disagreement since they were not significantly involved at an early enough stage.

The source for enough domestic funding for environmental infrastructure and equipment is unclear, as the development of a domestic bond market has yet to take place and bank credit remains difficult, given the weak structure and capitalization of the banking industry and ongoing State-owned enterprise reform. If financing is derived form Chinese bank loans, banking institutions will have much authority in the project approval process, however, if the project is financed by foreign government or international agency loans, MOF will play a key role.

In the past, MOFTEC was in charge of the distribution of all international soft loans to local projects in China. Municipalities had to contact MOFTEC directly to get funding for a project, and MOFTEC decided which soft loan could or would be provided. According to the origins and policies for foreign soft loans, companies of the donating country were most often invited for bidding. In turn, MOFTEC guaranteed that the loan would be paid back.

The authority of allocating soft loans for projects was shifted from MOFTEC to the MOF. To limit financial risk and to facilitate the approval process, MOF requires that municipal and provincial level governments guarantee the feasibility of a project. The viability of these provincial and municipal guarantees remains in serious question. As an example, many US companies involved in the power sector over the past decade are now having difficulty enforcing guaranteed "take or pay "contracts with local power companies and governments (which were essentially guaranteeing a rate of return, but which now are often revoking those contracts as the entire power sector is being overhauled).

Project Proposals and the Approval Process

Introduction to the Levels and Steps

Projects and proposals are most often created from the bottom up. The following sections of the report trace the major steps of a project from inception through the approval process. Both public infrastructure projects supported by the MOC, projects supported by other government ministries and departments and private enterprise investments in pollution control technology are all included in this process. The stages and complexity of the approval process are mostly determined by a project location, investment scale and financial sources.

All projects will need to be approved at some level by the SDPC, SETC or MOFTEC (if involving foreign investment), as well as SEPA (regarding EIA approval), in addition to receiving approval and support by the relevant industry sector bureau or other government bureau. The SDPC takes the lead in capital construction projects (ji ben jian she) and approving development of greenfield sites, while the SETC takes the lead regarding technical renovation or improvement projects (ji shu gai zao) such as installation of pollution treatment equipment. Based on the size of the investment of a project, the following scale is used for determining if approval is necessary at the State level by the SDPC or SETC, or at the provincial or municipal level by a local Planning Commissions or Economic and Trade Commissions:

The coastal special economic zones and some major municipalities such as Beijing, Shanghai and Tianjin enjoy special flexibility when it comes to approval of projects up to 200 million RMB (US$24.1 million), depending on the project The following types of projects also necessitate approval of the SDPC or SETC at the national level:

If a project is ministry/bureau-sponsored (financed from central government or ministry funds) the sponsoring ministry/bureau will have an important position in the approval process. All projects will also need approval of an EPB. Review and approval by SEPA at the national level is required if the project includes investment of more than 200 million RMB (US$24.1 million); involves work in more than one province, in a nuclear facility, or in a project of national interest (State secrecy); or has potential for causing cross-provincial pollution.

The actual steps in the project approval process can be typically listed as follows: 1) Project Proposal and Pre-Feasibility Study; 2) review meeting of all relevant local officials (local, municipal or provincial depending on the size and location); 3) initial approval by the appropriate level SDPC, SETC or MOFTEC and Finance Bureau; 4) completion of Feasibility Study and Environmental Impact Assessment (EIA); 5) another review meeting of all relevant local officials; 6) approval of the Feasibility Study by SDPC, SETC or MOFTEC and Finance Bureau; and 7) project implementation. The project evaluation process can run from 12-24 months before being completed, depending on the complexity of the project, especially regarding financing, and the level of approval required.

Preparation of Proposals

Local Construction Commissions (or their agents) prepare project proposals for urban infrastructure projects; industrial bureaus under the SETC and enterprises under their regulation prepare proposals for industrial projects across a range of sectors; and other local level branches of Ministries such as the Ministry of Water Resources have projects of their own. Essentially, each government ministry or bureau has an associated design institute which can prepare a project proposal and Pre-Feasibility Study. Private enterprises will approach their relevant industry sector bureau (coal, power, light-industry, etc.) when preparing a project. Whether it is a public project lead by one of the ministries or a project by a private enterprise, they will be hereinafter referred to as the Project Proponent. All Project Proposals must be first supported and approved by a relevant ministry or industry bureau. For example, a wastewater treatment plant would need to be approved by a local Construction Commission, a pollution prevention project at an electricity generation plant by a local State Power Corporation, or an urban emissions testing project by a local EPB.

Proposals and Pre-Feasibility Studies include a rough budget estimate, project timing, capacity of the project and amount of total investment. A Pre-Feasibility study is a simple and general outline - the beginning of a fully detailed Feasibility Study. Projects may already be included in municipal or provincial government urban plans or in a Five-Year Plan (the Tenth Five-Year Plan runs from 2001-2005), or local bureaus can establish which have already been created, or local government bureaus can recommend a list of priority projects to a local Planning Commission to be included in local budgets as priority projects.

Regarding a municipal wastewater treatment project, for example, the Municipal Construction Commission (MCC) writes a simple project proposal to the Municipal Planning Commission (MPC) and the Provincial Planning Commission (PPC). After approval, the MCC may begin the Feasibility Study, which is normally conducted by a State Class A Design Institute.

Review of Proposals by Local Officials

A meeting of all relevant local government officials and bureaus will need to be convened to review a Project Proposal. Project Proponents should be careful to work with the following local committees and bureaus that will need to reach consensus before a Project Proposal can move forward:

Local government bureaus will call these meetings among themselves, however, enterprises will need to ensure that they work with their local industry sector bureau (likely under the SETC) or another government bureau to ensure that local officials meet to review the merits of their proposals.

Agreement of all such relevant local government bodies is required before a proposal will be passed on for further review. Key issues include strength of financial resources, timing, investment return, and appropriateness relative to overall local development plans and cost-benefit analyses.

Approval by the appropriate SDPC, SETC or MOFTEC (Li Xiang)

Proposals are then submitted to the appropriate level (local, municipal or provincial) SDPC, SETC or MOFTEC for preliminary proposal approval (Li Xiang). If it meets their approval at this stage it is, in essence, accepted for consideration. Local Finance Bureaus will review of the project fits within the general budget plan and goals but, in general, are not extremely involved at this point.

Completion of Feasibility Study and EIA

Once the Li Xiang approval is granted, Project Proponents must initiate a complete Feasibility Study and officially register projects with the appropriate EPB to complete an EIA as the first tasks in moving forward. Preparation and timing of a Feasibility Study, an EIA, and creation of a detailed design documents by the designated design institute can often be somewhat flexible depending on the requirements of the project.

An accredited design, engineering, environmental protection or research institute - usually a State Class A Design Institute, and typically the same institute that worked on the Project Proposal - must undertake preparation of a full and detailed Feasibility Study. A Feasibility Study will document site selection decisions and approval, as well as financial and technical feasibility issues, including a comparative and competitive analysis to ensure a technologically and economically sound project decision.

The Feasibility Study must stress how the Project Proponent will finance the project (i.e. which funds it will use, any loan schemes, any guarantees to be relied upon or any tariffs to be used in repayment), as well as the technical feasibility. Chinese banks will review the commercial terms of the project and decide on funding. In the case of BOT power or wastewater plants, estimation of electricity price and approval from the local government should be clearly stated. After domestic financing or an international soft loan program is set forward, the Project Proponent will be constrained to the conditions of the according program (foreign soft loan programs usually require strict participation, bidding and repayment schemes).

An EIA is required for all new, expansion and renovation projects that may have impacts on the environment. The EIA shall include recommendations for mitigation of environmental impacts and follow guidelines prescribed by national and, if it exists, local legislation governing the EIA procedures and content. Obtaining EIA approval is a necessary prerequisite towards securing a license to operate.

Approval of Feasibility Study and Budget Approval by Finance Bureau

Another meeting will be held between the relevant government departments as mentioned in section 3.2.3 above in order to review the Feasibility Study. Further expert appraisal may be ordered if discussions deem them necessary. Strong attention will be paid to the financial viability as well as costs and benefits of the project. If there are problems with the Feasibility Study, the appropriate level SDPC, SETC or MOFTEC will give consultative advice to the Project Proponent and the relevant local industry bureau as appropriate and the Project Proponent will need to review the study and plans with the design institute, and eventually resubmit the Feasibility for considerations at another such meeting.

Upon approval by the appropriate level SDPC, SETC or MOFTEC, approval of the local Finance Bureau or the MOF regarding budget is required to serve as a second review on projects. The approval of the Feasibility Study is given to the Finance Bureau, which can try to influence the project if they are not in complete agreement, or do not believe the project is financially sound.

If the project will use soft loan financing, after approval by the appropriate level MOFTEC, the Project Proponent applies for the relevant soft loan through the MOF. A review by the international agency administering the soft loan also facilitates domestic bank evaluation of a project, as many soft loan programs are carried out as bank-to-bank credit guaranteed by the 'donating' government.

Project Implementation

After MOF project approval, the Project Proponent organizes a technical meeting with a technical design institute to initiate a bidding process. Larger State level projects will likely require the use of a major Chinese export-import company, and projects involving loans from international agencies will definitely be subject to strict bidding and transparency requirements, while smaller projects or projects initiated by enterprises themselves will certainly be subject to the wishes of those Project Proponents.

Open bidding is not yet the common practice if only domestic funding is involved. After obtaining land use approval, the Project Design Document process is initiated in order to obtain a Construction Permit from the relevant MPC/PPC. While for joint ventures, land use approval is often achieved on behalf of international parties by their Chinese partner, projects do require approval of Provincial Land Management Bureaus. Land Use Rights Permits will not be officially issued until an EIA and Feasibility Study have been approved by the appropriate EPB.

Caution Regarding Approvals

The core of any good project not only includes approval at the highest appropriate level of government, but also solid financing and a local or regional project proponent who has solidly prepared all aspects of a project proposal. Cloudy or conflicting regulatory provisions, promises from local officials desperate or merely anxious for investment, or existence of a project on a priority list somewhere are no excuse for not truly researching and defining the motivation of stakeholders, the financial capabilities of the local region and the existence of potentially conflicting projects in the region.

Chart of the Basic Project Approval Process

The following section represents an example of the approval process for a basic infrastructure project example, which would largely be conceived and directed by a Municipal Construction Commission (MCC) or Provincial Construction Commission (PCC), which are the most influential government departments in this regard. For wastewater treatment facilities, the MCC/PCC, together with the Municipal Civil Engineering Bureau (one of the subsidiaries of the MCC), will jointly issue project decisions, while solid waste treatment facilities and utility projects are jointly decided by the MCC/PCC and the Municipal Sanitation Bureau and Utility Bureau (both are also subsidiaries of the MCC/PCC). Usually the design of these projects are assigned by the MCC/PCC to their affiliated design institutes to ensure better and more reliable quality:

Proposal and Pre-Feasibility Study prepared by Project Proponent and a design institute (is usually also part of a city plan)

The MCC will organize an inter-governmental meeting, and coordinate to reach consensus. Participants usually include:

Agreement by all is necessary before the Project can be submitted for review by the MPC.
Project Financing

Funding Sources

The domestic sources for environmental investment in China can be divided into two major areas, namely, the public sector and private sector. Investment from the public sector refers to those from the government revenue raised mainly from State bonds. The so-called State bond funded environmental projects in the Tenth Five-Year Plan amount to 200 billion RMB (US$24.1 billion). The SDPC and PPCs will decide the allocation of this revenue to public environmental projects, for example, municipal wastewater treatment facilities and solid waste facilities (such as landfills and incinerators). Some utility projects, such as construction and/or retrofitting of power plants and gas supply systems are also covered since they contribute to pollution abatement.

Regarding private sector industrial pollution, individual enterprises have the physical and economic responsibility for abatement and pollution control. Investment needed for abatement mainly comes from the private sector, meaning it is up to individual enterprises to raise the necessary funding. As a result, it is the enterprise, which makes decisions regarding contracts for equipment and management from foreign companies. It should be noted, however, that local EPBs will have a big influence on the process and project completion since the abatement or pollution control with the goal of compliance is usually the primary concern.

According to environmental law, 80 percent of the pollution discharge levy collected from the industry by EPBs is put into a revenue pool allocated for environmental investment and managed by the government for completion of public and centralized environmental projects described above. Approximately 50 to 60 percent of total financing for environmental projects is controlled by city or county governments and is dedicated to basic urban sanitation, recycling, potable water treatment and trash removal. These funds are denominated in RMB, which is still not easily convertible. Domestic firms are better positioned to provide lower cost products and services, which do not require sophisticated technologies. However, the more affluent cities along the coast are boosting their environmental spending and are increasingly able to afford some foreign equipment and services for priority projects.

Another 20 to 25 percent of total environmental investment are controlled by the central banks, industrial ministries or other central government agencies for factories and installations under their control and certain environmental projects deemed national priorities. All industrial ministries have environmental Departments that oversee factories under the jurisdiction of their particular Ministry. Limited hard currency is available to each ministry for priority projects. About 15 percent of environmental funding in China is from multilateral and untied bilateral lending sources, such as the World Bank and the Asian Development Bank. These monies usually include a foreign currency portion, which is matched by a significant RMB contribution by the local partner. These projects still offer the biggest source of opportunities for American firms to penetrate the Chinese environmental market.

The final five to ten percent of environmental spending comes from the thousands of foreign investors in China. There are over 300,000 joint ventures currently in China. These companies are held to higher environmental standards, often by their own internal standards in the case of major multinationals, than their Chinese competition. Foreign environmental service and equipment companies may find that these enterprises offer one of the fastest-growing sources of opportunities. Foreign investors in the manufacturing sector are especially attractive markets for environmental consulting firms. In general, it is still rather difficult for foreign companies to be involved in the design, construction and operation of domestically funded environmental projects. There are greater opportunities regarding the sale of equipment and other supporting parts as part of a project, large or small. For private sector environmental projects, it is the Chinese enterprise that will make the selection among suppliers. However, it often turns out that the design institute engaged for a project plays a key role in the decision making process.

How Budgets Are Determined

The SDPC plays a key role in budget distribution at all levels of government. For environmental projects such as the Trans-Century Green Project Plan or projects in the national 3-3-2-1-1 Campaign, SEPA will, in general, be in charge of forwarding a collected list of proposed projects (submitted by provincial EPBs) to the SPDC as a reference in the budget determination process. Inclusion in a budget, however, by SEPA or another ministry is by no means guaranteed. Cautioned should be exercised in relying on State funding when US companies are involved in a project or in relying on a future stream of income such as municipal tariffs or taxes for loan. One-time project expenditures by State funded projects are generally more reliable, but the application and approval process is complicated and time-consuming.

In some provinces where certain percentages (ten percent in some locations) of government budgets are allocated for environmental projects, provincial EPBs have strong influences on the budget distribution and allocation process. However, Provincial Planning Commissions, Provincial Economic and Trade Commissions and Provincial Bureaus of MOFTEC will make final decisions. It may be beneficial to watch for or lobby for various project proposals to be added to priority lists or priority areas at the local level. As mentioned above, funding from EPBs comes mainly from levied pollution discharge fees. The 80 percent of the discharge fees collected locally are pooled into local government budgets and should be earmarked for environmental projects. The spending of this earmarked revenue is decided by provincial EPBs since it is spent at provincial level.

Bank Loans

Beginning in 1994, banks in China were reorganized into a core group of commercial banks, and a second tier of smaller banks was also created. They each individually review and evaluate loan projects. For large environmental projects and infrastructure projects, government supported loans or guo zhai (government debt) are necessary to support the projects as they are not commercially viable on their own terms. A large portion of the almost US$200 million in Chinese government State bonds that were sold in 1998 and 1999 to stimulate the domestic economy provided money for many infrastructure projects. However, most of this work was all done by domestic companies. Assessing a true return on an investment and determining if local government budgets and tariffs are enough to support such investments is a difficult process. Chinese banks will review the commercial terms of projects and decide on funding.

Key Banks include the following:

1. The People’s Bank of China (PBoC)
Central Bank of China
2. Bank of China (BOC)
In charge of national foreign currency and foreign trade, under the supervision of the PBoC
3. China Development Bank
SDPC has had some hopes for the Development Bank to help in providing loans to public capital construction and urban infrastructure projects, but the Development Bank is a commercialized bank, and it is making loans on its own terms for commercial gain only.
4. China Construction Bank (CCB)
Provides national infrastructure loans and self-financed loans for enterprises, especially for long-term credit business investments
5. Industrial and Commercial Bank of China (ICBC)
Provides loans to State-owned enterprises, foreign-owned enterprises, and private enterprises
6. Agricultural Bank of China
Provides agricultural credits to support agricultural development
7. Bank of Communications
Was established in 1987, and is the first bank to be listed on the domestic stock market.

All but the PBoC are now commercial banks, and are allowed to provide loans to enterprises in a very similar fashion, differing largely based on historical differences. Other key banks include the CITIC Industrial Bank, Everbright Bank of China, the China Agriculture Development Bank, the Import and Export Bank of China, the Guangdong Development Bank, the Shanghai Pudong Development Bank, the Shenzhen Development Bank, and Huaxia Bank. These banks are authorized to provide loans to companies in China. In the past, if project investment was totally from local funds (i.e. from a local government budget), there was a general assumption that there would be much less opportunity for foreign companies to compete with local companies bidding on the same projects. But recently, for projects such as municipal landfills in Guangdong Province, foreign firms have been directly sought out as their technology and experience exceeds that of any Chinese firms.

The following banks are authorized to provide a guarantee letter for loans: the China Agriculture Development Bank, the Import and Export Bank of China, the Guangdong Development Bank, the Shanghai Pudong Development Bank, and the Shenzhen Development Bank. Otherwise, China’s government does not provide loan guarantees for any projects.

Build-Operate-Transfer (BOT) Projects

China has expanded its experiment with BOT, especially in the power generation and water supply sectors, as a way to introduce more direct foreign investment into infrastructure projects (including environmental infrastructure). The main problem with attracting foreign investment or domestic private funding for environmental protection is the lack of transparency in the Chinese legal and regulatory framework and the low investment returns on most environmental projects.

Under BOT, a foreign company places an initial investment and operates the project for a specified period of time, allowing the firm to recover its investment and make some agreed profit. China started to experiment with BOT in 1995, focusing on road, bridge, water supply and power plant projects for a trial basis. The experiment with BOT in China’s infrastructure development is still at an early stage, and the government is proceeding quite carefully. According to Chinese government policy, BOT projects may include power plants with a capacity less than 250 MW, 30-80 km highways, bridges, tunnels over 1,000 meters, and urban water supply plants.

In May 1996, the State Council approved a joint circular from the State Planning Commission, Ministry of Power Industry and Ministry of Communications on Interim Guidelines for Foreign Investment Direction in China (zhidao waishang touzi fangxiang zhanxing guiding) and Guided Table of Industries for Foreign Investors (waishan touzi chanye zhidao mulu). The circular said that foreign investors are required to set up a project company for BOT projects, and that "upon expiration of the specified period, project companies shall transfer the facilities to Chinese governments departments without any compensation".

Project companies are to be responsible for all risks associated with a project, including financing, construction, purchasing, operation and maintenance. However, during the concession term, foreign investors would have project ownership and could carry out financing, engineering, design, construction, purchasing, operation, and management. They could increase relevant tariffs, such as highway tolls or utility charges upon agreement between investor(s) and the Chinese government. They could also prolong the period of operation in times of substantial losses resulting from readjustment of Chinese policies.

Foreign investors remain concerned whether foreign exchange will be available for profit repatriation, loan payments and equipment purchases. Currently, there are only three ways to generate exchange in the absence of a convertible currency: 1) export products or sell them to JVs and Wholly Owned Foreign Enterprises (WOFEs); 2) gain access to the foreign exchange market, in which hard currency can be bought with local RMB; or 3) by counter trade. Foreign companies can only remit foreign exchange to repay loans or in the form of interest and dividends.

There are a few BOT projects in operation in China, including small and medium scale wastewater treatment plants. The Vivendi BOT water treatment plant in Chengdu is detailed in the Annex A4 Case Study as an example.

Support from US Ex-Im Bank

The US Ex-Im Bank offers its short-, medium-, and long-term programs to support sales of US exports to China. Exports of consumer goods, spare parts, raw materials (on terms up to 180 days) and bulk agricultural commodities and quasi-capital goods (on terms up to 360 days) can be supported under Ex-Im Bank's short-term credit insurance policies. Short-term sales are normally supported on terms of letters of credit issued by one of the commercial banks in China, such as the Bank of China, China Development Bank, China Construction Bank, Bank of Communications or Industrial and Commercial Bank of China.

Exports of capital goods and related services can be supported by Ex-Im Bank's medium-and long-term loan and guarantee programs. Ex-Im Bank has operating agreements in place with the Bank of China and the China Development Bank, but other banks, such as the Industrial and Commercial Bank and the China Construction Bank, can and do work with Ex-Im Bank. Ex-Im Bank will consider loans or guarantees to other entities that have audited financial statements of international-standard quality prepared in English, provided the entity is creditworthy, allowing Ex-Im Bank to reach a credit decision, and the entity is able to demonstrate compliance with the requisite Chinese Government approvals. However, in some cases, Ex-Im Bank may require written head office approval of branch-issued letters of credit.

In most instances, final commitment applications are originated by the Chinese banks on behalf of Chinese end users, frequently with assistance from US exporters or lenders working with the end user. Once an Ex-Im Bank loan or guarantee is obtained, the Chinese bank then re-lends to the end user. Exporters and lenders should be aware that Chinese Government approvals and related documentation are required for the acquisition of foreign-currency denominated debt through Ex-Im Bank’s medium- and long-term programs. Final Ex-Im Bank approval is subject to receipt of this documentation from the Chinese borrower/guarantor applicant.

Ex-Im Bank now also considers limited recourse project financing in China where reasonable assurance of repayment is based on the project's cash flow rather than a sovereign guarantee. The following supplemental application information is required for all applications involving a private sector borrower, buyer, or guarantor:

A. Chinese Government Authorizations – Documentation of Chinese central government approvals of US dollar authorization, including external borrowing authority, for the borrower/buyer, and proof of Chinese government authorization to import the relevant products.

B. Financial Statement Information – Three years of independently audited financial statements with accompanying notes, audited by an internationally affiliated accounting firm in accordance with International Accounting Standards (IAS), including details of foreign currency assets/liabilities, foreign exchange gains/losses on a cash flow basis, information on government restrictions on the borrower’s/buyer’s ability to retain access to hard currency earnings, information on the borrower’s/buyer’s usage and reliance on short-term credit facilities to finance normal working capital, cash flow or funding requirements. Ex-Im may also require production and sales figures from non-financial institution borrowers.
C. Bank Reference – All applications (short, medium, and long) will require a bank reference.

D. Trade References – All applications involving non-financial institution borrowers/buyers will require trade references if the applicant has no prior repayment experience with the borrower/buyer and the borrower/buyer has made purchases on credit terms. In such cases, the applicant should request and verify two references provided by US suppliers.

For short-term insurance transactions, unless there are irrevocable letter of credit repayment terms, the repayment obligation should be evidenced by documentary draft(s). For medium-term insurance transactions, the repayment obligation must be documented by a valid and enforceable promissory note. Any other documents required as a condition of cover will be specified in the respective insurance policy.

Example 1: Infrastructure Project Approval Chart

The following chart represents the basic approval process for any type of project. Specific projects will dictate which government ministries and bureaus will need to be involved at the local and national level based on the sector of the economy in which they would be classified. All Project Proposals must be first supported and approved by a relevant ministry or industry bureau. For example, a wastewater treatment plant by a local Construction Commission, a pollution prevention project at an electricity generation plant by a local State Power Corporation, or an urban emissions testing project by a local EPB.

Example 2: Municipal Wastewater Treatment Project

The following flow chart shows the process for one of the Case Studies included in this report, the Zibo Municipal Wastewater Treatment Project, as included in Annex A1.

Decision-Making Checklist for US Firms

The following rough list of points may be useful in reviewing progress made to date in pursuit of an environmental project in China. When researching a project - major contacts for finding out about projects include the following:

When in the Proposal Preparation phase, it is important to remember the following roles played by Chinese government bodies:

During the Feasibility Study phase:

During the Funding Phase, some key functions include:

Engaging the Chinese Government and Enterprises

Although foreign companies are technically only allowed to become involved in projects after completion of the project proposal, Feasibility Study and financial approval, it is much easier to evaluate projects and compete to win projects if companies get involved as early as the proposal phase. This does carry risk, however, as it is uncertain if such efforts would be rewarded with approvals in the end. Perhaps the most serious interest, in terms of time and expense, should be given after proposals are approved at the PPC/MPC level (Li Xiang).

In cases where foreign technology is needed, the design institute will look for partners through ads in Chinese newspapers such as the China Environmental News (in Chinese) and trade-specific magazines like Chemical Week, or through other institutions, consultancies and agents.

In explaining how business is done in China, a short example of the term guanxi [connections] is necessary. In the most simple terms for US companies, it means keeping in mind the goals of Chinese enterprises and government agencies (which often become embroiled in rivalries and conflicts that can bring a project to a grinding halt), slowly building and constantly maintaining relationships with the above, remembering that negotiation processes are often long and complicated, and realizing that personal relationships frequently play an important role.

Opportunities and Recommendations for US Companies

Regarding Success in the Past

The following points can be made regarding the success of US firms regarding environmental projects:

Mistakes in the Past

Mistakes can be made easily, and in addition to the problems mentioned earlier, the following reasons may be cited as reasons for failure of some US firms in the past:

Potential Future Key Areas for Project Success

Reviewing the types of projects conducted to date and with an eye on future projects as will potentially be presented in the Tenth Five-Year Plan (2001-2005), the following areas of opportunity can be noted for US firms:

Regarding non-municipal projects, recovery and reutilization technology projects are attractive in China, as they can directly improve the profitability of industries while improving the environment. Unless technologies are proven to be able to improve bottom-line profitability of an enterprise, they are simply unlikely to make an investment. Projects should be able to withstand the incredible propensity for short-term (two to three year’s) mentality of many enterprises and local officials. Frequently lacking enforcement is another disincentive to support large environmental projects or purchases.

Joint ventures (JVs) may be the most promising path for US companies, as China would like to manufacture 80 percent or more of environmental products domestically and JVs seem to be the best way to meet these desires and gain access to the market at the same time. However, small US firms that enter into JV relationships should be sternly cautioned - finding a good JV partner that can provide an acceptable degree of financial transparency and can be trusted with technology transfer is extremely difficult.

Water pollution and control equipment and desulfurization technologies will continue to be attractive project areas as they capitalize on the priorities placed in these areas by the government. In addition, the Tenth Five-Year Plan will be finalized during the year 2000 and it should include many specific new projects (such as the creation of six major incineration centers for municipal waste) which should become attractive.

Electric power generation facilities will be required to reduce sulfur dioxide emissions, and although it will be difficult for them to install sulfur dioxide reduction equipment and pay to operate it (as electricity rates may remain too low to support such investments in the short term, they may be another area of focus for US firms, either in terms of management consulting or in terms of lower-cost technology improvements).

Local government will pay more attention to environmental infrastructure construction to help meet both Chinese government targets in the Ninth and Tenth Five-Year Plans and to meet economic development and social services goals. More openness in this process and in the bidding process will help small and medium-sized services companies become more involved in such projects.
List of Acronyms

AE&E Austrian Energy & Environmental
AUSAID Australian Agency for International Development
BOC Bank of China
BOT Build-Operate-Transfer
CCB China Construction Bank
CZPC Changzhou Planning Commission
DPC Datong Planning Commission
EIA Environmental Impact Assessment
EPB Environmental Protection Bureau
IAS International Accounting Standards
ICBC Industrial and Commercial Bank of China
JPPC Jiangsu Provincial Planning Commission
JSCC Jiangsu Construction Commission
JV Joint Venture
MCC Municipal Construction Commission
MCGC Municipal Coal Gas Company
MFB Municipal Financing Bureau
MOC Ministry of Construction
MOF Ministry of Finance
MOFTEC Ministry of Foreign Trade and Economic Cooperation
MOST Ministry of Science and Technology
MPC Municipal Planning Commission
OECF Overseas Economic Cooperation Fund
PBoC People's Bank of China
PPC Provincial Planning Commission
RMB Renminbi (Chinese Currency)
SDPC State Development and Planning Commission
SEPA State Environmental Protection Administration
SETC State Economic and Trade Commission
UNDP United Nations Development & Planning
WOFE Wholly Owned Foreign Enterprise
WTO World Trade Organization
WWTP Wujin Wastewater Treatment Plant
Appendix A– Case Studies

A1 Zibo Municipal Wastewater Treatment plant (Update) Project Information
Project Name: Zibo Municipal Biological Wastewater Treatment Plant
Company: Austrian Energy & Environmental (AE&E), whose name has now changed to VA Tech Wabag, specialized in water treatment technologies
Project Location: Shandong Province
Project Capacity: 140,000 tons per day
Project Investment: US$32,430,000

China and Austria set up a mixed commission of economic co-operation to facilitate mutual co-operation, and wastewater treatment projects were selected as a priority area by the Austrian government. The Austrian government provides loans for water projects recommended by the Foreign Investment Department of MOFTEC, and requires that 80 percent of the project equipment be purchased from Austrian manufacturers.

AE&E established a Beijing office and built a vast network of business connections with China’s authorities, who learned about the project at the early planning stage. AE&E contacted the Zibo Municipal Construction Commission, and expressed their interest in this project. Further, they committed to helping them arrange a loan from the Austrian government for the AE&E equipment purchase.

Proposal Phase
The Zibo government planned to build a wastewater treatment plant to solve the problem of growing consumption for industrial and city wastewater.

The Zibo government assigned the Tianjin Municipal Engineering Design Institute to conduct a Feasibility Study, which was then submitted to the Zibo Planning Commission. Since the project budget was 120 million RMB (US$14.5 million), which fell in the range of investment requiring by provincial-level approval, the Feasibility Study was submitted to the Shandong Provincial Planning Commission. An Environmental Impact Assessment needed to be carried out and approved by the local Environmental Protection Bureau (EPB).

Financial Approval Phase
AE&E helped the Zibo Municipal Construction Commission contact the Austrian government to arrange a loan for the AE&E equipment purchase. The remaining capital investment for the project was allocated by Zibo municipal government. MOFTEC and SDPC approved the financial application from the Shandong Planning Commission.

Bidding Phase
In 1989, the Shandong International Tendering Company, as the project executive agency, called for bids from three Austrian Firms for this project -- AE&E, Aqua Engineering Company and Waagner-Biro Company.

AE&E received the bid and several reasons may be attributed to its success. AE&E invited officials from MOFTC, SDPC, the Shandong Provincial Planning Commission, and the Zibo government to visit their equipment manufacturers and wastewater treatment facilities in Austria, and organized a workshop that introduced their technology to a Chinese delegation. The Chinese delegation was impressed by AE&E’s expertise. Further reasons may be that AE&E made efforts to persuade the Austrian government to provide a loan for the project and that AE&E reduced the price.

Other Comments
Austrian wastewater treatment equipment is not the most technologically advanced, nor may it be purchased at the most competitive price when compared to equipment from the US, France, or Japan. However, Austrian wastewater treatment equipment holds a big share of the Chinese wastewater treatment market for several reasons. First, Austrian firms entered China earlier than other industrial countries’ firms and thus have a firmer basic foundation. Second, demonstration projects for wastewater treatment funded by an Austrian government grant are working well. Third, AE&E established its office in China in the late 1980s, and have since built extensive networks with Chinese government organizations at central and local levels. AE&E is, therefore, familiar with project opportunities at the early stages, and works together with the Chinese planners and decision-makers to facilitate project planning and to increase the probability that AE&E will bid successfully for the project. Last, and perhaps most important, low interest Austrian government loans have proven very attractive to Chinese clients, as China currently lacks sufficient funding for developing or improving its environmental infrastructure.

VA Tech Wabag's Approach
The Ministry of Finance does not always have the most accurate information regarding potential projects. Major contacts for finding out about projects are as follows:

When first meeting with the Municipal Construction Commission, representatives of Austrian firms are often accompanied by the Austrian Trade Commissioner (and sometimes by the Ambassador), in order to get a meeting with more influential officials and representatives.

In the early stages, VAT TECH WABAG focused on making personal contact and impressing the MCC with VA TECH WABAG's personnel's reliability and qualifications (through a company presentation); explaining the procedures and advantages of Austrian soft loans; and stressing only marginal technical details since personal contact and good overall impressions are deemed more important at this stage.

After receiving the bidding invitation from the Window Company, VA TECH WABAG submitted a preliminary proposal. After this, they met with the Window Company, the end-user and the design institute to go into more technical detail and to start commercial discussions.

Relevant Contact Information
Environmental Protection Center of the State Bureau for Machine-Building Industry
Telephone: (86-10) 6859-4839
Fax: (86-10) 6859-4846/4839
Address: No. 46, Sanlihe Road, Xicheng District, Beijing 100820, China
Contact Person: Mr. Li Siyu, Director

Solid Waste Utilization at the Fengcheng Power Plant (update)
Project Information
Project Name: Fengcheng Hess Building Materials Co. Ltd.
Company: Hess Maschinenfabrik Gmbh & Co., a specialized concrete block equipment manufacturer headquartered in Bruchsal, with factories in Plochingen, Germany and Hamilton, Canada
Project Location: Jiangxi Province
Project Capacity: 4.2 million pieces of concrete block per year
Project Type: Sino-German Joint Venture
Project Investment: US$667,000 (DM1,000,000)

Proposal Phase
The disposal of coal ash and slag from Fengcheng coal-fired Thermal Power plant not only damaged local land and scenery, but also occupied valuable farmland. When the local EPB decided to address the coal ash problem, the Environmental Protection Center (EPC) of the State Bureau for Machine-building Industry proposed to achieve comprehensive utilization of the coal ash by introducing advanced concrete block production equipment. In March 1995, Fengcheng Planning Commission agreed to the project proposal. In April 1995, the Fengcheng government issued an official document appointing the EPC to conduct the Feasibility Study for the project.

Financial Approval Phase
Since this project was not a national project but a local one, it did not need central government approval. The project was initiated as an environmental pollution control project. Based on the "polluter pays" principal, the Fengcheng EPB asked the Fengcheng Power Plant to cover about 40 percent of the total project cost. A loan to the cement plant was necessary for the balance of the funds and expected to be repaid with the profit from the concrete block production.

Bidding Phase
The EPC selected three foreign firms as the potential technology suppliers -- Henke Maschinenefabrik GMBH, Hess Maschinenfabrik GMBH & Co. KG from Germany, and Rosacometta from Italy – due to the poor quality of domestic equipment. These three firms submitted quotes to the EPC in July 1995.

Hess occupied the dominant position for good quality, automation, and productivity of concrete block production equipment, with a price 20 to 30 percent price lower than Henke's and better after-sales service. In order to solve the project-funding deficit, the EPC decided to form a joint venture between the Fengcheng Cement Plant and the foreign equipment supplier. Hess responded enthusiastically to this option, offering 30 percent of their total quote, close to DM300,000 as their share.

Due to technical advantages of Hess equipment and their lower price, the EPC and the cement plant decided to establish a joint venture with Hess. In early October 1995, the Fengcheng Planning Commission, Finance Bureau, and the EPB approved the establishment of this JV firm. In November 1995, the Fengcheng Cement Plant and Hess GMBH finally signed the equipment supply and JV contracts for the establishment of Fengcheng Hess Building Materials Co. Ltd. Hess's share in the joint venture was 30 percent. In late November 1995, the joint venture firm was registered in Fengcheng City, Jiangxi Province.

Relevant Contact Information
Environmental Protection Center of the State Bureau for Machine-Building Industry
Telephone: (86-10) 6859-4839
Fax: (86-10) 6859-4846/4839
Address: No. 46, Sanlihe Road, Xicheng District, Beijing 100820, China
Contact: Mr. Li Siyu, Director

Wujin Wastewater Treatment Plant
Project Information
Project Name: Wujin Wastewater Treatment Plant
Company: DHV, based in Holland
Project Location: Jiangsu Province
Project Capacity: 80,000 tons of wastewater per day
Project Investment: US$12 million

The project was listed in the project program of the Wujin Agenda 21. DHV has a good relation with the Administrative Center for China’s Agenda 21 (ACCA21), who helped DHV to contact Wujin Agenda 21. It was DHV’s first project after establishing a representative office in Beijing.

Proposal Phase
The Wujin Wastewater Treatment Plant (WWTP), as the executive agency, prepared a project proposal to be submitted to the Changzhou Planning Commission (CZPC) for approval. The CZPC then submitted this proposal to Jiangsu Provincial Planning Commission (JPPC) for approval, because the investment fell in the range of investment that requires provincial-level approval. The proposal indicated the need for foreign investment.

WWTP contracted a Beijing design institute to conduct the Feasibility Study. The Environmental Impact Assessment was prepared by an institute authorized by the State Environmental Protection Administration (SEPA). The JPPC held a meeting with the Jiangsu EPB, the Jiangsu Construction Commission (JSCC), concerned investment banks, and concerned departments and agencies to discuss the feasibility study and approved it.

Because DHV was involved very early in the project identification stage, it had an opportunity to provide its technical inputs to JPPC.

Financial Approval Stage
The WWTP submitted its investment application to the Financial Department of Jiangsu Province and the Ministry of Finance for approval. Of the investment needed, a US$5 million loan from the Dutch government was approved and it was decided that the remaining US$7 million investment should be contributed by local funds.

DHV's Approach
Due to the Dutch funding involved, primarily companies from the Netherlands were invited to bid. Before submitting the project proposal, DHV made contacts with the project’s window company - Wujin Agenda 21.

For the present case, the early involvement clearly helped DHV’s success in winning the bid. However, it should note that, due to the complexity of the project identification, approval and financing procedures in China, mere early involvement is inadequate. Other factors such as support from top level leaders, and assistance in providing loans are also important.

Major contacts for finding out about projects are as follows:

Relevant Contact Information
Center for Environmentally Sound Technology Transfer
Telephone: (86-10) 8263-6607
Fax: (86-10) 8263-6017
Address: 109 Wanquanhe Road, Haidian District, Beijing 100089, China
Contact: Mr. Shi Han
E-mail: shihan@acca21.edu.cn

Vivendi Water Supply
Project Information
Project Name: Chengdu No. 6 Water Plant Build-Operate-Transfer (BOT) Project
Company: Vivendi Water and Marubeni Corporation
Project Location: Sichuan Province
Project Capacity: 460,000 tons per day
Project Investment: US$106.5 million

This project is a pilot BOT project and is the first BOT water treatment plant project in China. After a concession period of 18 years, effective form the signing date of the concession agreement (August 10th, 1999), the water plant will be transferred to the Chengdu government at no charge.

Proposal Phase
The Chengdu government decided to build a water treatment plant, and the State Development Planning Commission (SDPC) gave its approval in 1998. A competitive international bidding process was launched and bids were submitted by five consortia. The consortium formed by Vivendi Water and Marubeni Corporation won the competition. The Consortium established a project company for the financing, design, construction and operation of the project. Three technical subsidiaries of Vivendi (Campenon Bernard SGE Omnium de Traitements et de Valorisation, and Compagnie Générale de Travaux d'Hydraulique) joined together to form a construction consortium to undertake the design, procurement, construction and installation of all construction works.

Under the existing BOT framework, the sponsors established the project company as a wholly owned foreign enterprise (WOFE) to which the Chengdu government granted the concession. The sponsors applied to the Ministry of Foreign Trade Economic Commission (MOFTEC) for the establishment of the project company. Once MOFTEC approved the company establishment, it issued an approval certificate, with which the sponsors applied to State Administration of Industry and Commerce for the incorporation of the project company under the laws of the PRC and for obtaining a business license to design, construct, operate and maintain the water plant.

Financial Approval Phase
Thirty percent of the project budget was financed by equity as per the terms of the concession agreement. Vivendi and Marubeni was responsible for financing 70 percent of the investment, which amounted to US$74.5 million. Vivendi and Marubeni received a loan from the Asian Development Bank and from the European Investment Bank.

For the purpose of securing financing for the project, the Project Company is allowed, under the Concession Agreement, to create security interest over its rights and interests under various Project Agreements, as well as its tangible and intangible assets and proceeds from its accounts. The Security Package includes the following items:

During the Concession Period, the Project Company shall have the right, in accordance with applicable regulations, to convert RMB income from the project into foreign currency and to remit the funds outside the PRC for the purpose of debt service and other Project expenses.

Technical Phase
Extensive use has been made in the scheme design of equipment and materials needed for items manufactured within China or that can be easily procured within China. This affords considerable savings in the capital cost of the works, in maintenance costs, and in ensuring that replacement parts can be easily and quickly obtained. All control systems and equipment will be designed, procured, supplied and installed by a single specialist sub-contractor to ensure uniformity and compatibility. The design of the treatment works was developed to comply with the results of the Environmental Impact Assessment.

The layout of the plant includes provisions for future construction of production wastewater treatment facilities, as described in the Environmental Impact Assessment Report, which will be constructed in the future by the Chengdu government.

Relevant Contact Information
Center for Environmentally Sound Technology Transfer
Telephone: (86-10) 8263-6607
Fax: (86-10) 8263-6017
Address: 109 Wanquanhe Road, Haidian District, Beijing 100089, China
Contact: Mr. Shi Han, Director
E-mail: shihan@acca21.edu.cn

Coal Gas Project in Datong, Shanxi Province
Project Information
Project Name: Datong Coal Gas Company
Project Location: Datong, Shanxi Province
Project Capacity: 140,000 tons per day
Project Investment: 45 million RMB (US$5.4 million) with 20 million RMB (US$2.4 million) from the municipality and an expected AU$4-5 million (US$2.4-3 million)

Proposal Phase
Datong has one of the largest coal mines in China. The Municipal Coal Gas Company (MCGC), established in the 1950s and a part of the Municipal Utility Bureau, was determined to contribute to improving air quality by upgrading thousands of household coal stoves. To reduce water pollution and better contribute to urban air quality, MCGC sought funding for technical renovation in 1996.

MCGC, as part of Datong Utility Bureau and the executing agency, submitted the project proposal in 1996 to the Datong Planning Commission (DPC). The DPC then submitted the proposal to Shanxi Provincial Planning Commission for approval. The proposal indicated the need for foreign investment, to meet the gap in the total capital required.

The Provincial Foreign Trade & Economic Collaboration Bureau provided information about possible foreign funding sources. In this case, an Australian government grant was recommended to the Municipal Construction Commission(MCC), the Utility Bureau, and the Coal Gas Company. An application, together with the proposal for the Australian government grant, was submitted to the Provincial Foreign Trade & Economic Collaboration Bureau for approval. The refined proposal was then forwarded to MOFTEC in Beijing for final approval. MOFTEC serves as the coordinating agency for all foreign investments in China to avoid overlaps and to ensure that the proposed projects are in-line with national priorities. MOFTEC sent the approved proposal to the Australian Embassy where the Australian Agency for International Development (AUSAID) representatives completed a preliminary screening before sending it to AUSAID.

Financial Approval Phase
Commissioned by AUSAID, EGIS Consulting, an Australia-based consulting company, conducted the first weeklong investigation in August 1997 and prepared the pre-Feasibility Study for AUSAID. Domestic experts served as EGIS sub-contractors. The second on-site investigation was carried out two years later, in August 1999, and lasted for one month. A full Feasibility Study, covering technological renovation of coal gas production processes and community development through training and education, was completed and is currently under AUSAID review.

Datong has established a project office headed by Datong's vice mayor. The general manager of MCGC is believed to be the key decision-maker for the project. The local EPB plays a relatively minor role, though the compliance pressure from the EPB was the key driver for MCGC's proposal initiation.

AUSAID has a policy of open bidding for design and procurement contracting, though the details are unclear.

Relevant Contact Information
Chinese Research Academy for Environmental Sciences, Environmental Planning Institute
Telephone: (86-10) 8491-5239
Fax: (86-10) 8491-5262
Address: 8 Dayangfang, Anwai, Beijing 100012, China
Contact: Mr. Li Tongyuan
E-mail: lity@svr1-pek.unep.net

Center for Environmentally Sound Technology Transfer
Telephone: (86-10) 8263-6607
Fax: (86-10) 8263-6017
Address: 109 Wanquanhe Road, Haidian District, Beijing 100089, China
Contact: Mr. Shi Han
E-mail: shihan@acca21.edu.ch
Annex B - Contact Information

Center for Environmentally Sound Technology Transfer
Telephone: (86-10) 8263-6607
Fax: (86-10) 8263-6017
Address: 109 Wanquanhe Road, Haidian District, Beijing 100089, China
Contact: Mr. Shi Han
E-mail: shihan@acca21.edu.cn

China Council for International Cooperation on Environment and Development
Telephone: (86-10) 6612-6793
Fax: (86-10) 6615-1762
Address: 115 Xizhimennei Nanxiaojie, Beijing 100035, China
Website: www.harbour.sfu.ca/dlam

Environmental Protection Center of the State Bureau for Machine-Building Industry
Telephone: (86-10) 6859-4839
Fax: (86-10) 6859-4846/4839
Address: No. 46, Sanlihe Road, Xicheng District, Beijing 100820, China
Contact: Mr. Li Siyu, Director

Ministry of Construction, Foreign Affairs Department
Telephone: (86-10) 6839-3833
Fax: (86-10) 6831-3669
Address: Baiwanzhuang, Haidian District, Beijing 100835, China

Ministry of Finance, Department of International Cooperation
Telephone: (86-10) 6855-1118
Fax: (86-10) 6851-1125
Address: 3 Nansanxiang, Sanlihe, Xicheng District, Beijing 100820, China

Ministry of Foreign Trade and Economic Cooperation, Department of American and Oceanic Affairs
Telephone: (86-10) 6519-8804
Fax: (86-10) 6519-8904
Address: 2 Dongchang'an Jie, Beijing 100731, China
Website: www.moftec.gov.cn

Ministry of Science and Technology, Department of American and Oceanic Affairs
Telephone: (86-10) 6851-5544, ext. 1317
Fax: (86-10) 6851-2594
Address: 15 Fuxinglu, Xicheng District, Beijing 100038, China
Website: www.most.gov.cn

People's Bank of China, International Department
Telephone: (86-10) 6619-4806
Fax: (86-10) 6601-6707
Address: 32 Chengfangjie, Xicheng District, Beijing 100800, China

State Development Planning Commission, Foreign Affairs Department
Telephone: (86-10) 6850-2968
Fax: (86-10) 6850-2728
Address: 38 Yuetannanjie, Xicheng District, Beijing 100824, China
Website: www.sdpc.gov.cn

State Economic and Trade Commission, International Department
Telephone: (86-10) 6319-3570
Fax: (86-10) 6319-3625
Address: 26 Xuanwumen Xidajie, Beijing 100053, China
Website: www.setc.gov.cn

State Environmental Protection Administration, Department of International Cooperation
Telephone: (86-10) 6615-9816/3366, ext. 5521
Fax: (86-10) 6615-1768
Address: 115 Xizhimennei Nanxiaojie, Beijing 100035, China

Ministry of Agriculture, American Oceanic Cooperation & Exchange Department
Telephone: (86-10) 6419-2452
Fax: (86-10) 6419-2466/245111
Address: Nongzhanguan Nanli, Beijing 100026, China

Ministry of Information Industry, Department of External Affairs
Telephone: (86-10) 6602-0540
Fax: (86-10) 6601-1370
Address: 13 Xichang'anjie, Beijing 100804, China
Website: www.mii.gov.cn
Ministry of Communication, International Cooperation Department
Telephone: (86-10) 6529-2214
Fax: (86-10) 6529-2201
Address: 11 Jianguomennei Dajie, Beijing 100736, China

Ministry of Justice, Foreign Affairs Office
Telephone: (86-10) 6520-5213
Fax: (86-10) 6520-5316
Address: 10 Chaoyangmen Nandajie, Beijing 100020, China

Ministry of Labor and Social Security, Foreign Affairs Department
Telephone: (86-10) 6423-4145
Fax: (86-10) 6421-1624
Address: 12 Hepingli Zhongjie, Dongcheng District, Beijing 100716, China

Ministry of Land and Resources, International Cooperation Department
Telephone: (86-10) 6612-7096/7100/7098
Fax: (86-10) 6612-7247
Address: 37 Guanyingyuan Xiqu, Xicheng District, Beijing 100035, China
Website: www.mlr.gov.cn

Ministry of Water Resources, Foreign Affairs Office
Telephone: (86-10) 6320-2691
Fax: (86-10) 6354-8037
Address: 2 Baiguanglu Ertiao, Xuanwu District, Beijing 100053, China

Ministry of Public Health, International Department
Tel: (86-10) 6401-4338/8639
Fax: (86-10) 6401-4331
Address: 44 Houhaibeiyan, Xicheng District, Beijing 100725, China
Website: www.moh.gov.cn

General Administration of Customs, Foreign Affairs Department
Telephone: (86-10) 6519-4114
Fax: (86-10) 6512-6020
Address: 6 Jianguomennei Dajie, Beijing 100730, China

Beijing Planning Commission
Telephone: (86-10) 6831-2105
Address: A2, Baiwanzhuang Donglu, XiCheng District, Beijing 100037, China

Beijing Foreign Trade & Economic Commission
Telephone: (86-10) 6523-6688
Address: 190 Chaonei Dajie, Changyang District, Beijing 100010, China

Beijing Bureau of Finance
Telephone: (86-10) 6842-3355
Address: 15 Fuchenglu, Haidian District, Beijing 100037, China

Beijing Environmental Protection Bureau
Telephone: (86-10) 6841-4466
Address: Chegongzhong Xilu, Haidian District, Beijing 100044, China

Beijing Urban & Rural Construction Commission
Telephone: (86-10) 6801-7755
Address: 3 Toutiao, Nanlishilu, Xicheng District, Beijing 100045, China

Beijing Investment Service Center
Telephone: (86-10) 6554-3149/3150
Fax: (86-10) 6554-3161
Address: 3,4/F, Tower F, Fuhua Mansion, 8, Chaoyangmen Baidajie, Dongcheng District Beijing, 100027, China
Contact: Mr. Zhang Bin
Shanghai Construction Commission
Telephone: (86-21) 6321-2810
Address: People’s Avenue, Shanghai, China

Shanghai Foreign Trade & Economic Commission
Telephone: (86-21) 6275-2200
Address: Loushanguan Road, Shanghai, China

Construction Commission, Guangdong Province
Telephone: (86-20) 8330-2269
Address: 305 Dongfeng Zhonglu, Guangzhou, Guangdong Province, China

Environmental Protection Bureau, Guandong Province
Telephone: (86-20) 8336-7982
Address: Fuquan Sanxiang, Haizhu Beilu, Guangzhou, Guandong Province, China

Guangdong Province Finance Department
Telephone: (86-20) 8318-4219
Address: 376 Beijing Road, Guangzhou, Guandong Province, China

Guangzhou Finance Bureau
Telephone: (86-20) 8319-4620
Address: 25 Jiangjuxi, Guangzhou, Guandong Province, China

Planning Commission, Guangdong Province
Telephone: (86-20) 8333-1573
Address: 305 Dongfeng Middle Road, Guangzhou, Guandong Province, China

Foreign Trade & Economic Commission, Guangdong Province
Telephone: (86-20) 3880-2231
Address: 351 Tianhe Road, Guangzhou, Guandong Province, China

Guangzhou Foreign Trade & Economic Commission
Telephone: (86-20) 8108-0870
Address: 158, Dongfeng West Road, Guangzhou, Guandong Province, China

Jiangsu Province Finance Department
Telephone: (86-25) 663-8614
Address: 68 West Beijing Road, Nanjing, Jiangsu Province 210024, China

Nanjing Finance Bureau
Telephone: (86-25) 771-2383
Address: 10 East Beijing Road, Nanjing, Jiangsu Province 210008, China

Environmental Protection Bureau, Jiangsu Province
Telephone: (86-25) 663-9915
Address: No. 91 Building, 70 West Beijing Road, Nanjing, Jiangsu Province 210013, China
Construction Commission, Jiangsu Province
Telephone: (86-25) 663-3826
Address: 70 West Beijing Road, Nanjing, Jiangsu Province 210013, China

Foreign Trade & Economic Commission, Jiangsu Province
Telephone: (86-25) 771-2600
Address: 29 East Beijing Road, Nanjing, Jiangsu Province 210008, China

Planning and Economic Commission, Jiangsu Province
Telephone: (86-25) 330-1389
Address: 70 West Beijing Road, Nanjing, Jiangsu Province 210013, China

Nanjing Planning Commission
Telephone: (86-25) 337-9880
Address: No.6 Building, 41 East Beijing Road, Nanjing, Jiangsu Province 210008, China

Construction Commission, Shandong Province
Telephone: (86-531) 793-5571
Address: 46 Jingwu Xiaoweisi Lu, Jinan, Shandong Province 250001, China

Planning Commission, Shandong Province
Telephone: (86-531) 691-5719
Address: 1 Shengfu Qianjie, Jinan, Shandong Province 250011, China

Jinan Planning Commission
Telephone: (86-531) 792-1568
Address: 4 Jingyi Weisi Lu, Jinan, Shandong Province 250001, China

Economic and Trade Commission, Shandong Province
Telephone: (86-531) 691-6461
Address: 1 Shengfu Qianjie, Jinan, Shandong Province 250011, China

Jinan Foreign Economic & Trade Commission
Telephone: (86-531) 691-1387
Address: 71 Weiyi Lu, Jinan, Shandong Province 250001, China

Environmental Protection Bureau, Shandong Province
Telephone: (86-531) 692-5081
Address: 12 Zhijinshi, Jinan, Shandong Province 250011, China

Shandong Province Financial Department
Telephone: (86-531) 691-1995
Address: 158 Jingsi Lu Weiyi, Jinan, Shandong Province 250012, China

Environmental Protection Bureau, Shanxi Province
Telephone: (86-351) 304-0365
Address: 10 Xijihuying, Taiyuan, Shanxi Province, China
Shanxi Province Financial Department
Telephone: (86-351) 404-3310
Address: 345 Yingze Dajie, Taiyuan, Shanxi Province, China

Construction Commission, Shanxi Province
Telephone: (86-351) 307-4781
Address: 235 Jianshe Beilu, Taiyuan, Shanxi Province, China

Economic and Trade Commission, Shanxi Province
Telephone: (86-351) 304-6213
Address: 261 Fudong Jie, Taiyuan, Shanxi Province, China

Shanxi Province Foreign Trade and Economic Cooperation Department
Telephone: (86-351) 404-1722
Address: 15 Xinjiang Lu, Taiyuan, Shanxi Province, China

Taiyuan Foreign Trade & Economic Cooperation Commission
Telephone: (86-351) 412-4274
Address: 192 Xinjian Lu, Taiyuan, Shanxi Province, China

Taiyuan Planning Commission
Telephone: (86-351) 422-0809
Address: 211 Fuxi Jie, Taiyuan, Shanxi Province, China

Planning Commission, Chengdu Province
Telephone: (86-28) 666-3436
Address: Duyuan Street, Chengdu, Sichuan Province, China

Chengdu Planning Commission
Telephone: (86-28) 664-2560
Address: People’s West Road, Chengdu, Sichuan Province, China

Construction Commission, Sichuan Province
Telephone: (86-28) 555-5886
Address: 4th Section, People’s South Road, Chengdu, Sichuan Province, China

Chengdu Construction Administration Commission
Telephone: (86-28) 663-2515
Address: Dongchengen Street, Chengdu, Sichuan Province, China

Economic and Trade Commission, Sichuan Province
Telephone: (86-28) 652-2008
Address: Yongxing Lane, Chengdu, Sichuan Province, China

Environmental Protection Bureau, Sichuan Province
Telephone: (86-28) 612-8685
Address: Xiyu Street, Chengdu, Sichuan Province, China
Foreign Trade & Economic Cooperation Commission, Sichuan Province
Telephone: (86-28) 333-4812
Address: Chenghua Street, Chengdu, Sichuan Province, China

Wuhan Foreign Economic Relations and Trade Commission
Telephone: (86-27) 8579-4761
Address: No. 70 Qingnian Road, Han Kou, Wuhan, Hubei Province 430015, China

Wuhan Foreign Investment Office
Telephone: (86-27) 8282-7306
Address: No. 130 Yanjiang Avenue, Han Kou, Wuhan, Hubei Province, 430014, China

U.S. Department of Commerce, International Trade Administration, Environmental Technologies Industries
Telephone: (1-202) 482-0713
Fax: (1-202) 501-7909
Address: HCH Building, Room 1003, Washington, D.C. 20230, USA
Website: www.environment.ita.doc.gov
Contact: Ms. Susan Simon

Embassy of the United States of America
Telephone: (86-10) 6532-6924
Fax: (86-10) 6532-3297
Address: 3 Xiu Shui Bei Jie, Beijing, China 100600
Website: www.usembassy-china.org.cn
E-mail: Beijing.Office.Box@mail.doc.gov

ERM China- Beijing Office
Telephone: (86-10) 6402-6986/6405-2281
Fax: (86-10) 6400-7694
Address: No. 1 Andingmen Dongdajie, Beijing 100007, China
Website: www.ermchina.com
Appendex C – Websites

State Environmental Protection Administration

ERM China reports and services

China Environmental Protection

State of the Environment in China Report

Beauty Environment Enterprise Group (BE&E)- China Environment News

China Council for International Cooperation on Environment and Development

China E-News

China Energy and Environment 1997

UNDP Renewable Energy site

China Environment Reporter

China Page Pollutants and Contaminants in Foods & Environment

The Environment in Asia

New Ideas in Pollution Regulation - China Pollution Intensities

Hong Kong Planning, Environment & Lands Bureau

Shanghai Environment Online

Institute of Human Ecology

United States Environmental Protection Agency

U.S.-China Water Resource Management Program

United States Embassy – China

U.S. Company Directories for China

U.S. Embassy Beijing: Environment, Science, and Technology

Working Group on Environment in U.S.-China Relations

Chinese environmental NGOs

U.S. ITA data on the environmental technologies market in China

State of the Environment China 1997

Beijing Energy Efficiency Center

China State Environmental Protection Administration

International Fund for China’s Environment

Woodrow Wilson Center Environmental Change and Security Project

China Trade Guide

International Chamber of Commerce

Resources for the Future

National Library for the Environment

China Environmental Articles

China Environmental Protection Industry

China Environmental Protection Industry

Bank of China

China Daily


China Economic Information

Beijing Economic Information

State Statistics Bureau

Xinhua News Agency

China Pages directory

China Business Net

Foreign Trade Cooperation Network

Beijing Business Administration Network

China Business Resources

UNIDO Investment Network

China Standard Service Net

The Economist

The Far Eastern Economic Review

China Big Yellow Pages

Chinalaw Web

Government White Papers

China Info

US Exim Bank

China Environment Information Resource

China Chamber of Commerce-Metals, Minerals & Chemicals

South China Morning Post China news

China Council for International Cooperation on Environment

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